Since Christmas global markets have rallied following the sharp downturn in the final quarter of last year. Will it continue and either way, what will determine investors’ decisions?

The ASX 200 is up 22 per cent and has finally reached pre-GFC highs. While the ASX Small Ords is some way off its pre-GFC high it has had a similarly solid year, gaining 19 per cent.

Can we really predict what will happen for the next six months? Can we even know until the start of 2020 how markets go in H2 2019? Well, we could know as early as today (Tuesday).

Interest rates

It is anticipated the Reserve Bank will cut interest rates yet again and markets could rally just like last month. Since last month’s cut the ASX 200 has gained nearly 5 per cent and the ASX Small Ords nearly 3.5 per cent.

Until 2.30pm Tuesday, we can only guess which way they will go. But experts have taken comfort in the RBA’s statements in its most recent meeting minutes and public policy speeches.

CommSec senior economist Belinda Allen said Governor Lowe’s speech last week at the ANU was, “a clear signal more policy easing is coming and he implied that it’s going to be imminent. We expect the RBA to cut the cash rate in July”.

Westpac chief economist Bill Evans predicted one further rate cut this year, most likely in November, noting Lowe’s language was “unusually direct”.

“It is about as far as the Governor can go with forward guidance given that he cannot pre-commit to a decision that is decided by the RBA board as a while,” Evans said.

Redleaf Securities CEO John Athanasiou told clients yesterday morning, “If the experts are wrong [on interest rates], then consumer sentiment and domestic equities are likely to decline.”

However, the US Federal Reserve putting off an increase in rates last month has not been enough to slow Wall Street’s momentum down.

The trade war

Last weekend a “trade truce” between the US and China was reached. There will be no further tariffs and the nations continue to work on a “deal” that implicitly will end the trade war. But existing tariffs remain and it is not certain when or if a deal will happen.

“Although a worst case outcome has been averted, the threat of tariffs remains and it is unlikely the truce gives much confidence to firms; investment and hiring decisions,” said NAB economist Tapas Strickland.

Canadian bank ScotiaBank said, “President Trump needs to demonstrate that he’s extracting game-changing concessions from China that reflect elements of the near-deal that was dropped in April, while President Xi has to create the impression that any deal returns Sino-American economic relations to their pre-2018 status.”

Scotiabank dismissed talk that any deal was 90 per cent done. “No trade deal is ever really partially done: nothing is agreed until everything is agreed.”

Copenhagen-based Danske Bank also had interesting words to say about the trade war. While it said Trump was in no hurry to make a deal, it said he wants one.

“It [a deal] would help him keep the strong economy going and give important gifts to the farmers, who are crucial voters in several swing states,” Danske Bank said.

The bigger picture

But are trade war resolutions and lower interest rates good enough for the market? NAB does not believe so. The bank predicts the ASX 200 will fall nearly 300 points this month and 450 points this quarter. NAB argued technical indicators, including Bollinger Bands, suggested a market correction was well overdue.

Bollinger Bands are a technical analysis tool, specifically they are a type of trading band or envelope.

On the other hand, CommSec said, without setting a target, the outlook for the share market was positive. It pointed to the RBA’s cuts and that federal politics had a level of stability not seen for many years.

Yet there is no positive catalyst beyond interest rates. While investors will welcome tax refunds, due in coming weeks, it’s no certainty extra cash will be spent rather than saved. Interest rates may be at record lows – but they do exist.

One of the reasons interest rates were cut was because of a downturn in the property market. We are yet to formally see any relief rally in the property market.

Last week Stockhead spoke with LJ Hooker’s head of research Mat Tiller and he admitted home owners were yet to put their votes and tweets in action and put their properties on the market.

“I think vendors just want to see whether it’s a trend or a short-term thing and they’re more preparing their homes to list in the spring-selling periods,” he said.

READ MORE: So the Morrison government won. But what now for ASX real estate small caps?

However the housing market could be a lose-lose situation. BetaShares chief economist David Bassanese said lower building approvals and “debt-fuelled consumer spending”, were challenges for our economy – two things that another housing boom would stretch further.

Would there still be winners in a downturn?

If markets do fall that does not mean there won’t be any small caps that gain. We will see our share of biotechs that have proven they actually work, or miners coming across spectacular finds.

However it might be harder to raise money or keep shareholders patient while enduring weeks without news. Last year only 22 out of 95 IPOs ended higher, in stark contrast to this year.

Even if the share market does not perform for the rest of 2019, there’ll be chances for gains. One area might be commodities, particularly gold which has been hot in recent weeks.

Even NAB, the most bearish of our Big 4 banks in Australia’s outlook, predicted gold would continue to rise. It set a target of $US1500 this quarter.